LIC withdraws offer to sell R-Cap debt to ACRE

Mumbai: Life Insurance Corp has withdrawn the offer to sell ₹3,400 crore of debt of Anil Ambani-promoted Reliance Capital to Asset Care and Reconstruction Company (ACRE) over concerns the distressed-assets buyer's offer could be below the bids from resolution applicants, two people aware of the development told ET.

An offer by ACRE to the country's largest life insurer had triggered a Swiss challenge auction, ET reported on November 14. ACRE, an ARC backed by Ares SSG Capital, had offered about 22% recovery on LIC's admitted claims.

"Last week, LIC returned the earnest money deposit (EMD) to ACRE without conveying any reason," said one of the persons cited above. "The decision to withdraw after a Swiss challenge is rare and unusual," the same person said.

The binding bid that ACRE gave LIC was aligned with the offer received on November 28 from the highest-bidding resolution applicant - Piramal Enterprises-Cosmea Financial Holdings - for ₹5,231 crore.

LIC and ACRE did not respond to ET's request for comments.

IDBI Capital Markets, the process adviser appointed by LIC for selling Reliance Capital bonds, invited bids by November 25 - just three days ahead of the deadline set for submitting the resolution plans.

Since bids received under the corporate insolvency resolution process were far below the liquidation value, lenders decided to hold a two-day auction to narrow this wide gap.

The auction will resume on December 22 with a threshold price of ₹6,500 crore.

Four resolution applicants - Piramal-Cosmea, Torrent Investment, Hinduja Group, and Oaktree Capital - are expected to participate in the bidding process. Hinduja Group offered ₹5,060 crore; Torrent Investments ₹4,500 crore and Oaktree Capital ₹4,200 crore.

LIC believes that it could get better recovery under the challenge auction compared with the offer made by ACRE.

According to a note circulated to resolution applicants, a bidder must offer at least ₹1,000 crore over the threshold price - implying ₹7,500 crore - to be in the first round. This amount must improve by a minimum of ₹1,000 crore in the second round, ₹500 crore in the third round and ₹250 crore in the next, as reported by ET.

Rare Asset Reconstruction Ltd, an Ahmedabad ARC, gave a counteroffer to the ACRE's offer, but it was not supported by EMD, thus making the offer void, a third person said. The administrator has admitted ₹25,335 crore in claims from financial creditors.

In the past two years, LIC made three attempts to sell the debt of Reliance Capital. However, it failed to find buyers at a price that would translate into a 45% recovery.